Today’s REI Classroom Lesson

In the classroom today, Clint Coons enlightens us as to the benefits of investing in Nevada or Wyoming.

REI Classroom Summary

Clint Coons explains why there are distinct benefits to investing in Nevada and Wyoming in particular.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investment industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Clint: Hi. Clint Coons here, host of the REI Classroom, and right now, I want to talk to you about the difference between Nevada and Wyoming versus investing in your own state, when you should set up one of these entities.

Clint: There’s a lot of confusion out there about Nevada and Wyoming and if they are an appropriate entity for real estate investors. There’s a lot of misinformation and that creates confusion. There are these entity mills that spring up in Nevada and Wyoming and they’re not attorneys and they tell everyone, “You need a Nevada company,” or, “You need a Wyoming company in order to invest in real estate.”

Well, much of this information is just flat out wrong because when it comes to investing in real estate, you have to be aware what constitutes doing business in a particular state to determine whether or not either Nevada or Wyoming makes sense for your particular type of investing.

You see, if you set up a Nevada corporation, for instance, and you wanted to buy property in California, that’s where you’re going to flip, well, your Nevada corporation has to register in California. Now, many of the reasons why we set an entity up in Nevada or Wyoming is because we want to take advantage of privacy laws, that is if somebody is looking at your entity, it doesn’t trace back to you because you can use a nominee. Other benefits include no tax. That’s true. Nevada and Wyoming, your entity does not have a state tax, but that assumes, of course, that all your revenue is going to be generated there.

The other reason why people want to set up their entity in those two jurisdictions is asset protection. Nevada and Wyoming offer some of the best asset protection in this country, especially with corporations in Nevada, if somebody sued you, they couldn’t take your shares from you. Now, all of the benefits that I just described apply so long as your business stays in the state in which you incorporated. That is if you set up a Nevada corp, it’s got to stay in Nevada. If you set up a Wyoming LLC, it needs to stay in Wyoming. Once you take it across state lines and you start conducting business in a different state, all the benefits drop off.

Now, many of these entity mill companies that are out there pushing these types of entities, they’re in it for one thing: that is to line their pocketbooks. And they often don’t tell investors that they need to register their business in another state and as a result, some of these investors get burned.

I was just dealing with someone not too long ago who had a Nevada limited liability owning property in Illinois. Now, the problem was that this rental they owned in this Nevada LLC, the tenant quit paying so they wanted to bring an action to evict the tenant. Now, they filed their unlawful detainer action, but the attorney on the other side representing the tenant got the action dismissed because the LLC was not registered to do business in Illinois. So they were able to bounce them out of court.

See, you don’t want to fall into that trap by using an out-of-state LLC. What ends up happening is you spend a lot of money for no additional benefit. So when do you look at a Nevada or Wyoming company for your investing? Well, typically, what we use them for are holding companies. That is, if you have LLCs in say Texas, Georgia, California, Oregon, that own various rental properties, then what you should consider doing is consolidating that ownership interest.

Don’t own it in your own name. Set up a Wyoming LLC and have all of those interests held by that one Wyoming LLC and then you own the one Wyoming LLC. With that type of strategy, you’re not doing business with that Wyoming LLC in any of the other states. You’re staying in Wyoming. If anything were to happen and you were to be sued individually, then your creditors would have a very difficult time getting through that entity to those state-specific LLCs where all your properties as held so it serves as a buffer.

It also offers anonymity. You know, if you create your structure initially in Wyoming, take this for example, I set up a Wyoming LLC with anonymity, so nobody knows I own it. Then I go to California or, better yet, Oregon. Let’s say I’m going to go to Oregon and create an LCC in that state to own a piece of rental property. Well, when I create the LLC in Oregon, I set it up with the Wyoming LLC listed as its sole member.

So if anybody looks at the Oregon LLC, it’s going to point to Wyoming and if you set your Wyoming entity up properly, you’re using a nominee that is not you, someone who was there for filing purposes only and then resigned, they won’t even know that you own it. So it gives you a complete anonymity shield when it comes to asset protection. Plus, you’re able to take advantage of the laws of either Wyoming or in the case of Nevada, if you decide to use a Nevada holding LLC, the same benefit.

So those are some great strategies for people who like to buy and hold. Now, if you’re flipping, here’s one more strategy you can think about. I often set up a structure for flippers where we create a Nevada corporation or a Wyoming corporation and then we set up LLCs in each state where they’re going to flip property. The advantage of this type of strategy is that you minimize your overall risk exposure so you’re not flipping through the parent company. You’re only flipping through Wyoming LLC so the most you stand to lose is whatever goes wrong with that one flip.

The second benefit is that all of the income then flows down to that corporation and there’s no state tax. You will have to pay federal tax on that income, but you won’t have to pay any state tax either in Nevada or Wyoming. And, third, you get the benefit of Nevada’s laws or Wyoming’s laws because that corporation, or in the case of an LLC for flips, that is taxed as a C corporation, it’s not registered to do business anywhere else.

So there are many benefits to using Nevada and Wyoming. You just have to make sure you’re choosing the appropriate structure for your type of investing. So many investors make the wrong decision because they get wrong information. My name is Clint Coons. Look forward to seeing you in the future.

Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all, but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.

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Mr. Coons is a founding partner of Anderson Law Group and current manager of Anderson’s Tacoma office. After graduating from the University of Washington with a business degree, Mr. Coons began his career in construction. Giving up the hammer for a gavel, he graduated from Seattle University School of Law in 1997.